Understanding the Difference between Life Insurance and Death Insurance

Confusion is common between life insurance and death insurance. What are the characteristics of these contracts?

Life insurance is a savings investment which represents a third of the financial assets of the French in 2022, according to the Bank of France. By taking out a life insurance contract with a bank or insurer, you agree to pay premiums (one-off or periodic) to build up capital. When the contract is closed, the beneficiary (you or a third person designated in the contract) receives the accumulated capital or an annuity.

By taking out life insurance, you have the choice between two main types of contract:

• single-support contract also called euro funds
• multi-support contract also called unit-linked contract.

Investing for the long term

Payments are not guaranteed. You may notice capital losses depending on the evolution of the financial markets. For this reason, it is advisable to invest over the long term to smooth out market effects and thus optimize your earning potential. By investing in units of account, you benefit from a wide choice of investment vehicles with varying levels of volatility. Therefore, before investing in units of account, it is important to define your risk profile with your banker, your asset objectives and your investment duration.

Life insurance is distinguished by its flexibility and taxation. By taking out a life insurance contract, you are free to make partial surrenders or a total surrender of your accumulated capital as soon as you wish. This possibility remains subject to one condition: the beneficiary of the contract (who may be a person other than the one who opened the contract) must accept this withdrawal. He must give his consent in writing, once he has accepted his designation as beneficiary by following the mandatory procedure.

Death insurance to protect your loved ones

Death insurance is an insurance contract. You pay premiums to the insurer who in return will pay capital to your beneficiaries at the time of your death. Unlike life insurance, you cannot be the beneficiary. You must designate a person or people as beneficiary when signing the contract. Likewise, the amount of capital paid is defined when the contract is opened.

Death insurance is a tool designed to financially protect your loved ones against the ups and downs of life, particularly if you die or are the victim of an accident rendering you disabled.

Depending on the contracts, you can receive compensation in these cases:

• accident causing your death or disability
• illness (provided that it occurred after the death insurance contract was opened)
• suicide (sous conditions).

What cost?

Unlike life insurance, the payment of premiums for death insurance is non-refundable. If you decide to close your death insurance, you cannot receive capital equivalent to the premium payments. The cost of death insurance varies depending on the contracts and the amount of capital to be paid to the beneficiaries. The capital paid to the beneficiaries does not enter the estate and is therefore not subject to inheritance tax. But this exemption remains subject to conditions.